Thursday, June 30, 2011

Liberal Math

Does the above equation make sense to you? To most Democrats (President Barack Obama and Governor Jerry Brown, for instance), it makes perfect sense. It states that if a corporation takes in a certain amount of revenue, increasing their tax rate will equate into increased government tax intake. This will fix deficits, allow more spending on education, fix infrastructure, and generally make everyone a whole lot happier.

Wrong!

If you ever took an algebra class, you learn that there are constants and there are variables. The mistakes the Democrats make is they assume corporate revenue is a constant. As any person who has run a business knows, it is a variable. Company revenue is a complex variable at that. It is dependent on many factors, one of them being the tax rate.

Why do so many people not understand that when tax rates increase, it forces companies to adjust other factors in their business to account for that? These factors can include laying off workers, lessening worker's hours or pay rates, increasing prices of their products and/or services creating a burden on the consumers, or just simply going out of business which would create more unemployment.

It creates a vicious cycle. Any increased revenue from the higher taxes would end up being needed to aid the new group of unemployed people at best, and it wouldn't be enough anyways. So politicians would want to raise taxes again to cover this additional expense. Sound familiar? This is exactly what is happening. Higher taxes is self-serving. In other words, raising taxes actually creates more reasons to raise taxes.

Franklin Roosevelt raised taxes. Result: The depression got worse.
John F. Kennedy lowered taxes. Result: The economy grew.
Richard Nixon raised taxes. Result: A major economic downturn from the mid-70's to the mid-80's.
Ronald Reagan lowered taxes. Result: The economy performed well from the mid-80's to the early 90's.
George HW Bush raised taxes. Result: The economy went down.
George W Bush lowered taxes. Result: The economy boomed.
Barack Obama is finding ways to raise taxes. Result: What do you think?